Bank of England announces latest interest rate change

Experts on its expected impact on mortgage rates

Bank of England announces latest interest rate change

The Bank of England (BoE) raised interest rates by 0.25% moments ago, increasing the current bank base rate from 5% to 5.25%.

The central bank has now increased the base rate 14 consecutive times - it is now at its highest level in more than 15 years.

Latest consumer price index figures from the Office for National Statistics show that annual inflation fell to 7.9% in June from the previous month’s 8.7%.

Still, financial experts expected that the BoE’s Monetary Policy Committee would implement a rate hike today, albeit at a slower pace, considering the recent decline in annual inflation.

According to UK Finance, the latest 0.25% base rate hike means that homeowners would be paying a monthly average of £23.71 more on their tracker mortgage and £15.14 more on their standard variable rate mortgage.

It is a different story for fixed rate mortgages, however, as brokers have assured borrowers that any change in interest rates today would not have any effect on fixed rates for now.

“There will be no movement in fixed rate mortgage pricing because this has already been baked in,” said Lewis Shaw, owner of Mansfield-based Shaw Financial Services. “Considering the rollercoaster we’ve been on for the past few months, gilts staying flat over two weeks is manna from heaven, allowing lenders to price mortgages more accurately.”

Craig Fish, managing director at London-based mortgage broker Lodestone, echoed Shaw’s statement saying that most fixed rates on offer right now already have a rate rise factored into them.

“What is going to impact them, though, is the release of the inflation data on August 16, and what that does to swap rates, which influence mortgage pricing,” Fish pointed out. “If, as expected, inflation falls, I suspect we may see more lenders continue to lower rates as we have seen over the past week.”

Darryl Dhoffer, founder of Bedford-based The Mortgage Expert, also emphasised the significance of the inflation data due to be published mid-month.

“Looking at the past two weeks, two-year and five-year swap rates, which influence the pricing of two-year and five-year mortgages, have largely remained steady, which implies that lenders have already priced in any rises in fixed rates,” Dhoffer said. “I would not expect the majority of lenders to reprice any fixed rates until the next release of inflation figures on August 16.”

For mortgage holders who are struggling with their payments due to the increase in borrowing rates, UK Finance said a range of options are available for help, tailored to each person’s circumstances. The trade body also recently launched its ‘Reach Out’ campaign to encourage people to reach out to lenders, which assembled teams of experts ready to help anyone struggling with their mortgage payments.

Over the past several weeks, more than 40 mortgage lenders, representing over 90% of the mortgage market, have also signed up to the government’s new Mortgage Charter, committing them to provide additional support for borrowers. This includes giving customers approaching the end of a fixed-rate mortgage the chance to lock in a deal and request a better like-for-like deal if rates change up to six months ahead, and a guarantee of no possession within 12 months of their first missed payment.

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